Are Financial and Social Efficiency Mutually Exclusive? A Case Study of Vietnamese Microfinance Institutions

Annotation: 

Are Financial and Social Efficiency Mutually Exclusive? A Case Study of Vietnamese Microfinance Institutions

Maxime Lebovics, Niels Hermes and Marek Hudon

A major debate in microfinance focuses on the existence of a trade-off between the financial sustainability of microfinance institutions (MFIs) and their outreach to poor clients. This paper adds to this debate by analyzing whether financial and social  efficiency  are  mutually  exclusive  in  a  context  of  implicit  subsidies  by  the state  and  international  donors.  We  use  data  from  a  sample  of  28  Vietnamese MFIs  and  apply  Data  Envelopment  Analysis  (DEA)  to  identify  the  existence  of  a trade-off.  Our  analysis  shows that  for  Vietnamese  MFIs  financial  and  social efficiency are not related. We interpret this as evidence for the fact that there is no  support  to  believe  that  there  is  such  a  trade-off.  Subsidies,  based  on  which most  Vietnamese  MFIs  currently  operate,  helps them  to  show  high  financial efficiency,  while  at  the  same  time  being  able  to  attain  their  social  goals. Nevertheless, this model may not be sustainable in the long term.

Reference: 

Maxime Lebovics & Niels Hermes & Marek Hudon, 2014. "Are Financial and Social Efficiency Mutually Exclusive? A Case Study of Vietnamese Microfinance Institutions," Working Papers CEB 14-009, ULB -- Universite Libre de Bruxelles.